Coalition Secures $90M Series C At $890M Valuation To Grow Cyber Insurance Platform

Coalition, a San Francisco-based cyber insurance and security company, announced this morning it has raised $90 million in Series C funding led by Valor Equity Partners.

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Felicis Ventures, Greyhound Capital, and all of Coalition’s existing investors also participated in the financing, which brings the company’s total equity raised since its 2017 inception to $125 million, according to Crunchbase data. Previous backers include Vy Capital, Ribbit Capital, Hillhouse Capital, Valor Equity Partners and Greenoaks Capital.

This round caught our attention for a few reasons. First of all, Joshua Motta, the company’s founder and CEO, told me that Coalition intentionally opted not to raise more money at a higher (unicorn) valuation. (This is contrary to many companies’ strategies). The company also wanted to cap its dilution at around 10 percent and avoid the notoriety and scrutiny that can come with unicorn status.

“We could have raised much more, but we raised as much as we could reliably deploy,” he told me in a telephone interview. “We fought the impulse to seek that unicorn recognition because we felt that it would deviate from the company’s incentives. Unpretentiousness is the cornerstone of our culture.”

Refreshing.

Also, impressively, the current valuation is more than triple the $250 million that Coalition was valued at the time of its last raise, a Series B that was announced in May of 2019 that included $25 million in equity and $15 million in a line of credit.

Since that last round, Coalition has grown its number of employees from about 20 in five cities to 106 in 19 cities across five countries. It’s also seen its number of customers climb from 800 to over 25,000.

And, from April 2019 to April 2020, the company saw a 600 percent increase in revenue (or premiums), according to Motta, who was an early employee at Cloudflare.

Customers range from sole proprietors to small businesses to enterprises with over $1 billion in revenue, according to Motta. They hail from a variety of industries and include tech architecture firms, law offices, churches, hospitals and doctors.

What it does

First and foremost, Coalition provides cyber insurance, giving organizations the “ability to protect the value of their business including financial, intangible, and tangible damage,” with up to $15 million in cyber insurance. The company also provides cybersecurity tools to its customers for free so it can pay out less money in claims from its revenue-generating insurance offering.

The goal is to help prevent losses and provide security and incident services to keep them from happening in the first place. If they do occur, Coalition then works to help organizations recover from failures and breaches. The startup does things like covering situations in which an organization can’t access their bank accounts because of a phishing scam or employees can’t work because a server’s inoperable.

“Cybersecurity isn’t a technology problem, it’s a risk management problem,” Motta said.  “Traditional cybersecurity technology such as firewalls and antivirus were designed to protect networks, not businesses. Coalition protects an entire business by offering cybersecurity-as-a-service without any additional hardware or software, security and incident response services.”

Coalition claims that it’s never had more than 1.7 percent of its policyholders file a claim in any given year, which Motta said is well below an industry average of 6.2 percent.

The company is not profitable on a topline basis, but it is on a unit economics basis, he said.

Looking ahead

The company plans to use its new capital to continue to make its cybersecurity capabilities available at no cost to small and midsize businesses.

“Businesses need more protection than traditional insurers can offer, including help preventing incidents from happening in the first place, and support during and after a crisis,” said Vivek Pattipati, partner at Valor Equity Partners, in a statement. “We believe Coalition will be as disruptive to the cybersecurity industry as it has been to the insurance industry.”

He added that Coalition is taking a sophisticated approach to underwriting, while “actively mitigating cyber risks.”

 “Importantly, we have a great deal of confidence in Joshua Motta, who is a proven operator with substantial experience across both security and financial services,” Pattipati wrote via email.

With plans to expand globally, Coalition launched in Canada on Monday. Plus, it intends to develop additional insurance products “to address a new range of threats technology brings to both tangible and intangible assets.”

Indeed, ransomware attacks make up the largest source of cyber insurance claims and Coalition says it is poised to address them as they continue to increase amid the COVID-19 pandemic, Motta said.

“The future of cyber insurance is in integrated solutions to protect against cyber incidents across all asset types,” said Sundeep Peechu, managing director at Felicis Ventures. “Coalition is uniquely positioned to challenge the status quo of insurance by unraveling the complexity of modeling and pricing cyber as a peril.”

Illustration: Li-Anne Dias